What happens if a home doesn’t meet appraisal?
Before we get into those scenarios, you need to understand that if a home does not meet appraisal, then the lender will ONLY loan money on the value of the home. The value is determined by the appraiser, who is hired by the bank (the lender).
When the appraiser is hired, he will look at homes in the area similar to the home that is being purchased. He will look at the size of the home, if it’s one or two stories, the year it was built, how many bedrooms and bathrooms, etc. He will also go and view the home in person, walking around the property and inside the home. From this he will determine the home’s value.
What does it mean when a home meets appraisal?
Let’s say that the sales price of the home is $300,000. The appraisal comes back at $300,000. This means that the house has met appraisal. It is valued at the sales price.
What does it mean when a home does NOT meet appraisal?
Again, let’s say the sales price of the home is $300,000. The appraisal comes back at $290,000. This means that the house did not meet appraisal. The appraiser’s value of the home is priced $10,000 below the sales price.
So, the question becomes, what happens if a home doesn’t meet appraisal?
In the event the home does not meet appraisal, there are three options available:
- The sales price is reduced – but the seller has to agree to the price reduction
- The buyer brings extra funds to the table to make up the difference between the appraised value and the sales price.
- Based on the Third Party Financing Addendum, the buyer can terminate the contract before closing and receive his earnest money back.
These are scenarios that you need to discuss with your REALTOR®. Every transaction is unique and requires thorough review with your REALTOR® before any decisions are made.